Over the years, there has been a symbiotic relationship between investment banks and private equity firms. And it has been quite profitable (in terms of fees) -- that is, until recently.

Now, with investment banks ailing, the relationships may get even stronger. In other words, private equity firms -- which are bulging with cash -- may be providers of much-needed capital.

According to a piece in the Financial Times [a paid publication], there have been some discussions between TPG and Merrill Lynch (NYSE: MER) regarding financing. Funny enough, Merrill's CEO, John Thain, has been fairly clear that his firm doesn't need the money. But, hey, things can change, right? So why not keep the channels open? That's what good investment bankers do.

However, the potential linkup does raise some interesting issues. After all, there could be serious conflicts of interest. Investment banks are supposed to provide unbiased advice to their clients. But, is this possible if TPG is a bidder for a Merrill client?

True, Wall Street is known for dancing with these conflicts (if not relishing in them). But, I'm sure clients will get a little squeamish.

Besides, as a major investor, TPG is likely to have lots of visibility into Merrill -- which may provide a strong competitive position. In a way, this could mean that rival investment banks will be standoffish when dealing with TPG.

Then again, another possibility is that Merrill and TPG will forge a major alliance, becoming the private equity division. This could be attractive to Merrill, which is currently hamstrung because of the credit crunch.

Tom Taulli is the author of various books, including The Complete M&A Handbook (www.mergerbook.com) and is also a principal in Averiware, which provides an ERP system to small and mid-size businesses.